Litigation: How the Internet affects personal jurisdiction

For more than 60 years, the hallmark test of personal jurisdiction has been the “minimum contacts” of the defendants. Post-International Shoe, a court could exercise power over an entity so long as there were certain minimum contacts, such that “the maintenance of the suit [did] not offend traditional notions of fair play and substantial justice.” These words are ingrained into the brain of every first-year law student.

The 1980s saw the addition of two elements to the traditional minimum contacts analysis—namely, whether the defendant “purposely established” contact with the forum state (i.e., does the defendant have a presence, or otherwise direct its conduct into the forum state?), and whether the defendant’s conduct and connection with the forum state are such that a defendant “should reasonably expect to be haled into court there.” These additions were complements of two parties whose names are commonplace in American nomenclature: Burger King and Volkswagen.

Then came the dot-com era, when the use of the Internet for business and commercial transactions turned the established tests for personal jurisdiction on its head. After all, when conducting business via the Internet, theoretically a company’s reach extends to virtually everywhere an Internet connection is available. But does this mean that a company could be sued anywhere in the world? Or that an entity is conducting business in all places that the Internet is being accessed? If so, this becomes a business nightmare. Unpredictability regarding a company’s liability would reign supreme as the rules governing both jurisdiction and liability would be up in the air. A basic principle to note is that a potential defendant should have some control over and certainly not be surprised by the jurisdictional consequences of its actions. But the Internet makes this analysis tricky as there are no boundaries in cyberspace.

Today, with the Internet having expanded from a few tech-savvy computer literates to an indispensable tool used by billions worldwide, its broad connectivity precludes a company’s ability to structure its primary conduct with minimum assurances as to where and when that conduct will and will not render them liable to suit. After all, parties can engage in commercial transactions sitting in their pajamas from anywhere they can connect to the Web. As a result, at least theoretically, a party could obtain jurisdiction over a foreign website owner in any forum the plaintiff chooses solely as a result of the mere existence of a website.

To date, courts across the U.S. lack a uniform approach when addressing the issue of jurisdiction based on a company’s Internet presence. While at least three distinct lines of cases have developed over the past decade regarding this issue, the borders of Internet-based jurisdictional analysis are fairly well accepted. At one end of the spectrum, the mere presence of a website is not in and of itself sufficient to establish jurisdiction in a non-forum state. At the other end, a website that enables repeat business transactions suffices to establish jurisdiction. In reality, however, most website activities fall somewhere in between.

The first of the three lines of cases relating to Internet-created jurisdiction is the “Zippo” test or “sliding scale” approach, first enunciated by a Pennsylvania court in Zippo Manufacturing Co. v. Zippo Dot Com, Inc. Under this approach—which has lost favor in recent years—a court analyzes a defendant’s website activity, with the likelihood of jurisdiction being exercised directly proportionate to the nature and quality of the Internet-based commercial activity. This test has led to wildly inconsistent results.

The second of the three lines involves an analysis of whether a website was intentionally created and used to secure customers in the forum state. Deliberateness and intentionality are the only factors with any relevance when using this approach, which has been adopted by several circuits.

Finally, the third approach has a minimum threshold of interactivity for a website prior to implementation of the Zippo test. For a passive website, this test is essentially a block against jurisdiction.

In addition to the lack of uniformity among U.S. courts in addressing this jurisdictional issue, there are no international guidelines regarding when Internet presence can subject a party to foreign jurisdiction. As a result, particularly as it relates to copyrights, trademarks and other forms of intellectual property, general counsel must be cognizant of differing standards and vigilant in protecting their rights.

Counsel who seek to limit the jurisdictions where their company may be sued have several tools at their disposal. The first is mapping technology, which geographically limits where a website may be accessed. Another option is the addition of a forum-selection clause to the website, requiring a “click-thru” for users to assent to the designated forum. So long as the law remains unsettled, these are but a few of the potential solutions.

The use of the Internet often throws businesses into a catch-22 situation. The Internet has without question become a significant profit driver for a whole variety of businesses. But the rise of the Internet also poses a legally complex issue—where companies can be sued when transactions take place in cyberspace and no one knows who or where the customers are located.